Family offices have long been considered to be a mysterious and poorly understood element of the global wealth management universe. So well done Campden Wealth and UBS for producing their annual Family Office Reports which have done much to penetrate the miasma surrounding them.
Not only we do we now have a better idea about the size of a typical family office (FO) in terms of assets under management; the type of activities in which it engages; the number of staff it employs; and asset allocations and investment performance. We also have detailed cost breakdowns for the various activities and functions discharged along with comparisons between the relative performance of single family offices (SFOs) and multi-family offices (MFOs)
In addition, the latest Family Office Report, provides insights on aspects of family office operations that could pose problems in recent years, not least the ongoing challenges posed by succession (see accompanying article).
The 2017 UBS/Campden Wealth Family Office Report surveyed 262 FOs offices of which 43.0 percent emanated from Europe; 31 percent from North America; 16.3 percent from Asia Pacific; and 9.4 percent from emerging markets.
North American FOs tended to bigger than their peers with average assets under management of $1,170 million. European-based FOs had average assets under management of $945 million; emerging market based FOs $874 million and Asia Pacific-based FOs $445 million.
The average family office had $921 million of assets under management while the founding family had net wealth of $1.457 billion
SFOs accounted for 67.9 percent of the survey sample of which 55.6 percent operated independently of the family business while the remaining 12.3 percent were embedded within it.
MFOs accounted for the other 32.2 percent of the sample of which commercial, i.e. profit making, MFOs accounted for 16.1 percent and “private”, i.e. FOs that had a founding family that look after the direct interests of other families.
Judged from the perspective of an independent, though not disinterested, observer, a number of points stand out in the latest Family Office Report.
The first is the source of family wealth.
Roughly half of the operating businesses owned by families whose FOs participated in the survey came from either finance and insurance (17.7 percent), real estate and rental/leasing (17.7 percent) or manufacturing.
The second is the increased professionalism of FOs and the extent to which males dominate senior management positions.
Non-family member professionals tend to dominate as far as FO management is concerned. They accounted for 55.6 percent of FO chief executives; 75.3 percent of chief investment officers; 86.5 percent of chief operating officers; and 88.9 percent of chief financial officers.
Only 7.7 percent of participating FOs had female chief executives. Although females accounted for 37.9 percent of chief financial officers; 37.5 percent of chief operating officers; and 13.2 percent of chief investment officers there is a long way to go before anything like sexual equality will be achieved.
The third is what appears to be a relatively poor investment performance record for 2016.
Although average returns improved considerably from the 0.3 percent recorded in 2015 to 7.0 percent this seems to be a rather poor return given the buoyant performance of most asset classes in 2016.
This is probably explained by an over-exposure to real estate, an asset class particularly favoured by the rich and wealthy, which did not fare especially well during the year.
What would have been interesting is a comparison between commercial MFOs and other FO constituents both in terms of asset allocation and investment performance.
It sometimes seems from an admittedly anecdotal perspective that FOs are, if anything, over-diversified. One FO of this writer’s acquaintance allocated to 28 asset classes/sub-asset classes for example.
But then perhaps account has to be taken of direct equity holdings, i.e. the family business, the risk tolerance of the family along with its investment objectives.